ATMOS ENERGY CORP (Form: 10-Q)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


(Mark One)
þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the quarterly period ended June 30, 2005

or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the transition period from to

Commission File Number 1-10042

Atmos Energy Corporation

(Exact name of registrant as specified in its charter)


Texas and Virginia		75-1743247
(State or other jurisdiction of incorporation or organization)		(IRS employer identification no.)

Three Lincoln Centre, Suite 1800 5430 LBJ Freeway, Dallas, Texas (Address of principal executive offices)		75240 (Zip code)

(972) 934-9227

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act) Yes þ No o

Number of shares outstanding of each of the issuer’s classes of common stock, as of July 29, 2005.


Class		Shares Outstanding

No Par Value		80,354,478

TABLE OF CONTENTS


PART 1. FINANCIAL INFORMATION
	Item 1. Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures about Market Risk
	Item 4. Controls and Procedures
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 6. Exhibits
SIGNATURES
EXHIBITS INDEX
	Item 6(a)
Computation of Ratio of Earnings to Fixed Charges
Letter Re: Unaudited Interim Financial Information
Rule 13a-14(a)/15d-14(a) Certifications
Section 1350 Certifications

PART 1. FINANCIAL INFORMATION


Item 1.	*Financial Statements*

ATMOS ENERGY CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS


			June 30,			September 30,
			2005			2004

			(Unaudited)
			(In thousands, except
			share data)
ASSETS
Property, plant and equipment			$	4,687,891		$	2,633,651
	Less accumulated depreciation and amortization			1,383,080			911,130

		Net property, plant and equipment		3,304,811			1,722,521
Current assets
	Cash and cash equivalents			23,637			201,932
	Cash held on deposit in margin account			22,660			—
	Accounts receivable, net			299,954			211,810
	Gas stored underground			334,245			200,134
	Other current assets			75,958			63,236

		Total current assets		756,454			677,112
Goodwill and intangible assets				709,980			238,272
Deferred charges and other assets				286,699			231,978

			$	5,057,944		$	2,869,883

CAPITALIZATION AND LIABILITIES
Shareholders’ equity
	Common stock, no par value (stated at $.005 per share); 200,000,000 shares authorized; issued and outstanding:
		June 30, 2005 — 80,249,195 shares;
		September 30, 2004 — 62,799,710 shares	$	401		$	314
	Additional paid-in capital			1,416,327			1,005,644
	Retained earnings			220,569			142,030
	Accumulated other comprehensive loss			(21,287	)		(14,529	)

		Shareholders’ equity		1,616,010			1,133,459
Long-term debt				2,183,639			861,311

		Total capitalization		3,799,649			1,994,770
Current liabilities
	Accounts payable and accrued liabilities			231,881			185,295
	Other current liabilities			342,408			223,265
	Current maturities of long-term debt			3,242			5,908

		Total current liabilities		577,531			414,468
Deferred income taxes				222,699			213,930
Regulatory cost of removal obligation				254,988			103,579
Deferred credits and other liabilities				203,077			143,136

			$	5,057,944		$	2,869,883

See accompanying notes to condensed consolidated financial statements

ATMOS ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME


			Three Months Ended
			June 30

			2005			2004

			(Unaudited)
			(In thousands, except
			per share data)
Operating revenues
	Utility segment		$	501,735		$	256,252
	Natural gas marketing segment			466,835			364,339
	Pipeline and storage segment			36,524			5,357
	Other nonutility segment			1,421			853
	Intersegment eliminations			(96,563	)		(80,743	)

				909,952			546,058
Purchased gas cost
	Utility segment			326,502			163,093
	Natural gas marketing segment			456,440			352,708
	Pipeline and storage segment			(1,733	)		3,150
	Other nonutility segment			—			—
	Intersegment eliminations			(95,606	)		(80,385	)

				685,603			438,566

	Gross profit			224,349			107,492
Operating expenses
	Operation and maintenance			94,518			50,467
	Depreciation and amortization			43,448			23,268
	Taxes, other than income			46,915			12,297

		Total operating expenses		184,881			86,032

Operating income				39,468			21,460
Miscellaneous income				1,524			2,187
Interest charges				33,689			16,011

Income before income taxes				7,303			7,636
Income tax expense				2,817			2,871

		Net income	$	4,486		$	4,765

Basic net income per share			$	0.06		$	0.09

Diluted net income per share			$	0.06		$	0.09

Cash dividends per share			$	0.310		$	0.305

Weighted average shares outstanding:
	Basic			79,683			52,220

	Diluted			80,144			52,617

See accompanying notes to condensed consolidated financial statements

ATMOS ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME


			Nine Months Ended
			June 30

			2005			2004

			(Unaudited)
			(In thousands, except
			per share data)
Operating revenues
	Utility segment		$	2,650,793		$	1,425,022
	Natural gas marketing segment			1,473,527			1,255,386
	Pipeline and storage segment			130,798			18,243
	Other nonutility segment			4,058			2,249
	Intersegment eliminations			(290,477	)		(273,741	)

				3,968,699			2,427,159
Purchased gas cost
	Utility segment			1,895,181			1,003,977
	Natural gas marketing segment			1,425,128			1,214,395
	Pipeline and storage segment			8,895			9,158
	Other nonutility segment			—			—
	Intersegment eliminations			(287,889	)		(273,042	)

				3,041,315			1,954,488

	Gross profit			927,384			472,671
Operating expenses
	Operation and maintenance			313,753			166,476
	Depreciation and amortization			132,771			69,879
	Taxes, other than income			140,537			45,901

		Total operating expenses		587,061			282,256

Operating income				340,323			190,415
Miscellaneous income				2,867			7,850
Interest charges				99,304			49,506

Income before income taxes				243,886			148,759
Income tax expense				91,299			56,148

		Net income	$	152,587		$	92,611

Basic net income per share			$	1.96		$	1.79

Diluted net income per share			$	1.94		$	1.78

Cash dividends per share			$	0.930		$	0.915

Weighted average shares outstanding:
	Basic			78,009			51,788

	Diluted			78,478			52,166

See accompanying notes to condensed consolidated financial statements

ATMOS ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


				Nine Months Ended
				June 30

				2005			2004

				(Unaudited)
				(In thousands)
Cash Flows From Operating Activities
	Net income			$	152,587		$	92,611
	Adjustments to reconcile net income to net cash provided by operating activities:
		Gain on the sale of assets			—			(6,700	)
		Depreciation and amortization:
			Charged to depreciation and amortization		132,771			69,879
			Charged to other accounts		634			1,270
		Deferred income taxes			17,703			5,750
		Other			7,593			(1,405	)
		Net assets/ liabilities from risk management activities			14,276			4,469
		Net change in operating assets and liabilities			61,846			193,388

			Net cash provided by operating activities		387,410			359,262
Cash Flows From Investing Activities
	Capital expenditures				(226,851	)		(129,508	)
	Acquisitions				(1,916,654	)		(1,957	)
	Proceeds from the sale of assets				—			27,919
	Other				(1,648	)		(505	)

			Net cash used in investing activities		(2,145,153	)		(104,051	)
Cash Flows From Financing Activities
	Net decrease in short-term debt				—			(118,595	)
	Net proceeds from issuance of long-term debt				1,385,847			5,000
	Repayment of long-term debt				(102,801	)		(9,079	)
	Settlement of Treasury lock agreements				(43,770	)		—
	Cash dividends paid				(74,048	)		(47,615	)
	Issuance of common stock				32,206			26,290
	Net proceeds from equity offering				382,014			—

			Net cash provided by (used in) financing activities		1,579,448			(143,999	)

Net increase (decrease) in cash and cash equivalents					(178,295	)		111,212
Cash and cash equivalents at beginning of period					201,932			15,683

Cash and cash equivalents at end of period				$	23,637		$	126,895

See accompanying notes to condensed consolidated financial statements

ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

June 30, 2005


1.	Nature of Business

Atmos Energy Corporation (“Atmos” or “the Company”) and its subsidiaries are engaged primarily in the natural gas utility business as well as certain nonutility businesses. Through our natural gas utility business, we distribute natural gas through sales and transportation arrangements to approximately 3.2 million residential, commercial, public-authority and industrial customers through our seven regulated natural gas utility divisions, in the service areas described below:


Division		Service Area

Atmos Energy Colorado-Kansas Division		Colorado, Kansas, Missouri ⁽³⁾
Atmos Energy Kentucky Division		Kentucky
Atmos Energy Louisiana Division		Louisiana
Atmos Energy Mid-States Division		Georgia ⁽³⁾ , Illinois ⁽³⁾ , Iowa ⁽³⁾ , Missouri ⁽³⁾ , Tennessee, Virginia ⁽³⁾
Atmos Energy Mississippi Division ⁽¹⁾		Mississippi
Atmos Energy Mid-Tex Division ⁽²⁾		Texas, including the Dallas/Fort Worth metropolitan area
Atmos Energy West Texas Division		West Texas


⁽¹⁾	The name of this division was changed from the Mississippi Valley Gas Company Division in April 2005.

⁽²⁾	Acquired in October 2004.

⁽³⁾	Denotes locations where we have more limited service areas.

As further described in Note 3, on October 1, 2004, we completed our acquisition of the natural gas distribution and pipeline operations of TXU Gas Company (TXU Gas). The TXU Gas operations we acquired are regulated businesses engaged in the purchase, transmission, storage, distribution and sale of natural gas in the north-central, eastern and western parts of Texas. We also acquired a system consisting of 6,162 miles of gas transmission and gathering lines and five underground storage reservoirs, all within Texas. As a result of the TXU Gas acquisition, on October 1, 2004, we created the Atmos Energy Mid-Tex Division, which provides gas distribution services to our approximately 1.5 million residential and business customers in Texas, including the Dallas/Fort Worth metropolitan area. We also created the Atmos Pipeline — Texas Division to manage and operate the TXU Gas pipeline and storage operations we acquired.

In addition, we transport natural gas for others through our distribution system. Our utility business is subject to federal and state regulation and/or regulation by local authorities in each of the states in which the utility divisions operate. Our shared-services division is located in Dallas, Texas, and our customer support centers are located in Amarillo, Texas, and Metairie, Louisiana. In addition, on April 1, 2005, we took over the operations of a Waco, Texas customer support center, and all call center services formerly provided by TXU Gas under a transitional services agreement were terminated. We intend to close the purchase of the related assets on October 1, 2005 for approximately $1.7 million.

Our nonutility businesses include our natural gas marketing operations, our pipeline and storage operations and our other nonutility operations which are provided in 22 states. These operations are either organized under or managed by Atmos Energy Holdings, Inc. (AEH), which is wholly-owned by the Company.

Our natural gas marketing operations are managed by Atmos Energy Marketing, LLC (AEM), which is wholly-owned by AEH. AEM provides a variety of natural gas management services to municipalities, natural gas utility systems and industrial natural gas customers, primarily in the southeastern and midwestern states

ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

and to our Colorado-Kansas, Kentucky, Louisiana and Mid-States divisions. These services consist primarily of furnishing natural gas supplies at fixed and market-based prices, contract negotiation and administration, load forecasting, gas storage acquisition and management services, transportation services, peaking sales and balancing services, capacity utilization strategies and gas price hedging through the use of derivative instruments.

Our pipeline and storage operations consist of the operations of our Atmos Pipeline — Texas Division, a division of Atmos Energy Corporation, and of Atmos Pipeline and Storage, LLC (APS), which is wholly-owned by AEH. The Atmos Pipeline — Texas Division was purchased from TXU Gas and transports natural gas to the Atmos Energy Mid-Tex Division, transports natural gas to third parties and manages five underground storage reservoirs in Texas. Through APS, we own or have an interest in underground storage fields in Kentucky and Louisiana. We also use these storage facilities to reduce the need to contract for additional pipeline capacity to meet customer demand during peak periods.

Our other nonutility businesses consist primarily of the operations of Atmos Energy Services, LLC (AES) and Atmos Power Systems, Inc., which are wholly-owned by AEH. Through AES, we provide natural gas management services to our utility operations. These services, which began on April 1, 2004, include aggregating and purchasing gas supply, arranging transportation and storage logistics and ultimately delivering the gas to our utility service areas at competitive prices. Through Atmos Power Systems, Inc., we construct gas-fired electric peaking power-generating plants and associated facilities and may enter into agreements to either lease or sell these plants.


2.	Unaudited Interim Financial Information

In the opinion of management, all material adjustments (consisting of normal recurring accruals) necessary for a fair presentation have been made to the unaudited consolidated interim-period financial statements. These consolidated interim-period financial statements and notes are condensed as permitted by the instructions to Form 10-Q and should be read in conjunction with the audited consolidated financial statements of Atmos Energy Corporation in its Annual Report on Form 10-K for the fiscal year ended September 30, 2004. Because of seasonal and other factors, the results of operations for the three and nine-month periods ended June 30, 2005 are not indicative of expected results of operations for the fiscal year ending September 30, 2005. Further, the impact of the TXU Gas acquisition on the statement of cash flows is reflected in the acquisitions line item; therefore, the net changes in operating assets and liabilities will not reflect balance sheet changes attributable solely to that acquisition.


	*Significant accounting policies*

Our accounting policies are described in Note 2 to our Annual Report on Form 10-K for the year ended September 30, 2004. There were no significant changes to our accounting policies during the nine months ended June 30, 2005.


	*Stock-based compensation plans*

We have two stock-based compensation plans that provide for the granting of incentive stock options, nonqualified stock options, stock appreciation rights, bonus stock, time-lapse restricted stock and performance-based restricted stock units to officers and key employees: the 1998 Long-Term Incentive Plan and the Long-Term Stock Plan for the Mid-States Division. Nonemployee directors are also eligible to receive such stock-based compensation under the 1998 Long-Term Incentive Plan. The objectives of these plans include attracting and retaining the best personnel, providing for additional performance incentives and promoting our success by providing employees with the opportunity to acquire common stock.

ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

As permitted by Statement of Financial Accounting Standards (SFAS) 123, Accounting for Stock-Based Compensation , we account for these plans under the intrinsic-value method described in Accounting Principles Board (APB) Opinion 25, Accounting for Stock Issued to Employees . Under this method, no compensation cost for stock options is recognized for stock-option awards granted at or above fair-market value. Awards of restricted stock are valued at the market price of the Company’s common stock on the date of grant. The unearned compensation is amortized to operation and maintenance expense over the vesting period of the restricted stock. As discussed below, beginning October 1, 2005 we will account for our stock-based compensation in accordance with SFAS 123 (revised), Share-Based Payment .

Had compensation expense for our stock options issued under the Long-Term Incentive Plan been recognized based on the fair value on the grant date under the methodology prescribed by SFAS 123, our net income and earnings per share for the three and nine-months ended June 30, 2005 and 2004 would have been impacted as shown in the following table:


		Three Months Ended						Nine Months Ended
		June 30						June 30

		2005			2004			2005			2004

		(In thousands, except per share amounts)
Net income — as reported		$	4,486		$	4,765		$	152,587		$	92,611
Restricted stock compensation expense included in income, net of tax			542			384			1,514			580
Total stock-based employee compensation expense determined under fair-value-based method for all awards, net of tax			(676	)		(651	)		(2,114	)		(1,428	)

Net income — pro forma		$	4,352		$	4,498		$	151,987		$	91,763

Earnings per share:
	Basic earnings per share — as reported	$	0.06		$	0.09		$	1.96		$	1.79

	Basic earnings per share — pro forma	$	0.05		$	0.09		$	1.95		$	1.77

	Diluted earnings per share — as reported	$	0.06		$	0.09		$	1.94		$	1.78

	Diluted earnings per share — pro forma	$	0.05		$	0.09		$	1.94		$	1.76

At June 30, 2005, there were 300 options outstanding under the Long-Term Stock Plan for the Mid-States Division, all of which were fully vested. Because of the limited activities of this plan, the pro forma effects of applying SFAS 123 would have less than a $0.01 per diluted share effect on earnings per share.


	*Regulatory assets and liabilities*

We record certain costs as regulatory assets in accordance with SFAS 71, Accounting for the Effects of Certain Types of Regulation , when future recovery through customer rates is considered probable. Regulatory liabilities are recorded when it is probable that revenues will be reduced for amounts that will be credited to customers through the ratemaking process. Substantially all of our regulatory assets are recorded as a component of deferred charges and substantially all of our regulatory liabilities are recorded as a component of deferred credits and other liabilities. Deferred gas costs are recorded either in other current assets or liabilities and the regulatory cost of removal obligation is separately reported.

ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Significant regulatory assets and liabilities as of June 30, 2005 and September 30, 2004 included the following:


			June 30,				September 30,
			2005				2004

			(In thousands)